Choosing the right financial product for your business needs is crucial in order to stay on budget. In this article, you will find the most important differences between a bank loan and a lease.
A loan is borrowing money to purchase a piece of equipment and pay back over time.
A lease is an agreement that allows you to use specific equipment for a period of time.
What is the difference between a loan and a lease?
|Amount||60-80% of the purchase price. Banks typically do not include additional costs, such as delivery, installation, software licenses, or sales tax.||Up to 100% of the equipment price. Some leasing companies can also incorporate additional costs into your agreements.|
|Rates||Banks rely on Prime Rate or other indexes when determining an individual rate for your business. Therefore, rates and payments can fluctuate during the term.||Lessors determine a fixed rate upfront and offer equal payments month-to-month unless special provisions are included in the contract. That makes budgeting and cash flow management easier.|
|Terms||Banks offer a selection of standard terms and tend to be less flexible when it comes to special requests.||Equipment leasing agreements can be as short as 12 months and as long as 84 months. Sometimes, it is possible to request a balloon payment at the end to get lower monthly payments.|
|Equipment||It is easy for banks to lend money for popular products such as cars, but much harder for the types of professional equipment they do not understand.||Leasing companies specialize in working with industrial equipment. They understand your business and the equipment in use.|
|Collateral||Most banks require additional collateral such as other owned vehicles, real estate, or accounts receivable.||Only the piece of equipment being leased is required as collateral. Your other business assets are not involved.|
|Application||Banks take 2 to 3 weeks to review your file and make a decision.||Typically, a decision can be made in just 1 business day.|